Back of Budget cuts at heart of current dispute

Senate increases Health and Human Services program spending

Grant Bosse

Governor Maggie Hassan had some harsh words for the Senate Finance Committee this week. But the “sweeping, across the board cuts” to Health and Human Services programs aren’t in the line by line budget headed to the Senate floor, which actually spends more than the Governor’s budget on HHS programs. The dispute is over a series of “back of the budget” reductions requiring state officials to find savings over the next two years. The New Hampshire House is seeking $13.5 million in HHS cuts, while Senate budget writers want HHS Commissioner Nick Toumpas to find $26 million in savings in his two-year $1.34 billion General Fund budget.

Hassan points to Toumpas’s claim that he would be forced to cut $40 million in critical programs such as Children in Need of Services, the developmental disabilities checklist, juvenile justice, and aid to counties. But that list of unpopular cuts goes far beyond any savings Toumpas would be forced to find within his department. Toumpas also thinks budget estimates for CHINS spending is $4 million too low, and that budget writers are counting on $10 million in savings from shifting Medicaid to Managed Care that won’t materialize in time.

House and Senate budget writers are quite close on the amount they would spend on most HHS programs, though the House increases uncompensated care payments to hospitals far more than the Senate. The starkest difference is in the amount of savings they expect Toumpas to generate within his agency. Hassan says that difference could lead to drastic cuts in crucial HHS programs.

These deep cuts to Health and Human Services and employees will cost hundreds of jobs and put at risk critical areas, including mental health care, funding the waitlist for people with developmental disabilities, the CHINS program, and the ability to deliver basic services.

But the Senate budget would actually spend more on HHS programs than the House plan, even after asking Toumpas to come up with more in savings. The Senate budget appropriates $35 million more from the General Fund than the House. It significantly reduces expected Medicaid Enhancement Tax revenues after State Medicaid Director Katie Dunn testified that the Governor’s original MET projections were far too optimistic. Overall, the Senate budget estimates $134 million less in total HHS revenues than the House, most of which would come out of state payments to hospitals rather than HHS programs.

Both Governor Hassan and the House direct HHS to return $2.25 million in savings in both Fiscal Year 2014 and FY15. The Senate seeks $3.5 million a year in “back of the budget” savings. The line by line appropriations for CHINS, developmental disabilities, and other key social services are nearly identical across all three documents. The Senate budget also directs the Governor to find $50 million in personnel savings, at least $20 million must come from state general fund spending. HHS employs just under half of the state workforce.

The Senate provision to find $50 million in personnel savings throughout state government is likely to be one of the most contentious issues in the $11 billion budget fight, as Hassan’s scathing statement foreshadows. It would direct savings to come not just from operations within agencies, but from salaries and benefits of state employees, prompting fierce opposition from the state’s public sector unions.

Budget writers use “back of the budget” cuts to give department heads flexibility while maintaining higher up-front appropriations. State officials can cut services, leave open vacant positions, or change their operations, as long as they keep the Joint Legislative Fiscal Committee updated on how they are reaching their budget goals.

Governor John Lynch often requested “back of the budget” personnel cuts in his budgets to give him leverage in labor negotiations, tying his hands before he ever sat down with union negotiators. In 2008, he sought $50 million in “back of the budget” cuts, and in 2010, directed state agencies to find $140 million in savings to make up for sagging state revenues.

Governor Hassan is also seeking $9 million in “back of the budget” cuts from the Judicial Branch, while the House asks for $9.5 million in savings, and the Senate is looking for $10 million. House and Senate budget writers agree in seeking $1 million back from the Legislative Branch, $750,000 from the NH Veterans Home, and $500,000 from the Sununu Youth Services Center in Manchester. The Senate budget also directs the Department of Revenue Administration to come up with $1 million in extra savings.

Hassan spokesman Marc Goldberg stresses that Toumpas already has to find $9 million in his budget to pay back the federal Centers for Medicare and Medicaid Services as part of a settlement over excess Medicaid disbursements in past years. Hassan included this provision in her budget, but the House moved that expense to the back of the budget in April, a move criticized by Hassan at the time.*

If HHS were to absorb half of personnel cuts included in the Senate budget, as well as the Sununu Center reductions and the federal Medicaid settlement, it would face $26 million in “back of the budget” cuts, far short of the $40 million hole Toumpas claims. The House budget would require $13.5 million in cuts from HHS, once the federal Medicaid settlement is included. Hassan’s budget called for just $4.5 million in HHS savings, accounting for the $9 million settlement in its baseline.*

Following next week’s Senate budget debate, differences between the House and Senate budgets will be hammered out in a Committee of Conference. Legislators face a June 30th deadline to approving the state’s two-year budget before the new Fiscal Year begins.

*Original article stated that Hassan had also included $9 million Medicaid settlement as a back of the budget cut. It was accounted for in her February budget submission, but not in either the House or Senate budgets. Hattip to Marc Goldberg for the correction.

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Gov. Hassan is right about the projected state surplus

Charlie Arlinghaus

May 10, 2013

As originally published in the New Hampshire Union Leader

The state is on track to generate a modest surplus when the two-year budget passed in 2011 ends this June 30. However, regular revenues are not surging and legislators writing the current budget should estimate cautiously and follow Gov. Hassan’s advice to place this surplus into the long-neglected rainy day fund.

For months, most budget writers have feared a significant budget shortfall. Revenues through the first eight months of the fiscal year, the last report before the budget was adopted by the House, were $41.1 million below budget. Taking that into account, the House budget presumed an end-of-year shortfall of $38 million.

But the last two months have been extraordinary. For just the last two months, revenues have exceeded budget estimates by $74.5 million. Most of that can be attributed to two things: Business taxes exceeded the budget by $34.5 million, and the general fund portion of the proceeds from two legal settlements were $27.2 million.

At this point, if spending levels come in as predicted, the state could end the budget cycle (the result of the budget passed two years ago) with a $43 million balance – the undesignated surpluses of the last four years.

Our state budget law normally requires a surplus balance at the end of two years to be deposited in the rainy day fund. But it has become distressingly commonplace for legislators of both political parties to suspend that portion of the budget law without debate.

The budgets in 2005 and 2007, each one managed by a different party, suspended the rainy day fund law. Only later in the process did each Legislature decide to put a portion of the balance in the rainy day fund. That keeps the money available for current spending rather than safeguarded as a reserve.

The 2011 budget followed suit. The prior budget resulted in a $17.7 million balance, which would ordinarily have been deposited in the rainy day fund. Instead, section 207 of the state budget suspended that law. That was a mistake.

Suspending the rainy day fund law encourages the Legislature to pass a budget that is not balanced in itself but spends a one-time windfall as if it were operating revenue. The potential surplus we are looking at (if the last two months go as expected) includes $17.7 million carried forward and an operating surplus for the biennium that is roughly equal to the $27 million of lawsuit windfall revenues (another tobacco lawsuit and the MTBE lawsuit).

The governor’s reaction to this was exactly correct. We should take whatever surplus ends up generated and put it in the rainy day fund. Sadly, over the last decade lawmakers have regarded the decision to follow the state budget as an extraordinary act rather than business as usual.

Ordinarily I would advocate not using the proceeds of lawsuits as general-fund spending. Booking them as 2013 revenue rather than using them as a prop for the next two-year budget is a good step. Lawmakers of both parties should now commit simply to following the state’s rainy day fund law. Follow the law and the surplus gets put where it ought to go. This shouldn’t be a subject for debate – or remotely controversial.

Next, we ought not assume that revenues are flowing freely and that revenue estimates should suddenly be shot skyward. Our windfall is not the result of economic growth. It is the result of $27.2 million of not-to-be-repeated lawsuit windfall.

Revenues are not doing unusually well. Excluding the lawsuit, year-to-date revenue is less than one-half of 1 percent ahead of budget. Regular revenues are about 3.5 percent ahead of last year. House budget writers estimated cautious increases of just under 2 percent per year (absent tax increases). Those estimates are quite realistic if you don’t assume that the above-average business tax growth of 2013 will be repeated.

Remember that the state has very difficult times when revenues don’t materialize and sudden, out-of-budget spending cuts have to be found. Cautious revenue estimating leads to modest surpluses which allow for contingencies that come up during the two years a budget is in effect.

State government should follow the governor’s advice: don’t suspend the rainy day fund law. Save the surplus. Then use the House revenue estimates (without the tax increases). After the ups and downs of the last decade, a little caution is in order.

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NH Budget Should be Fixed, not Punted

Charlie Arlinghaus

April 17, 2013

As originally published in the New Hampshire Union Leader

New Hampshire’s budget experiences the greatest difficulty when short-term fixes solve nothing and merely delay decisions by creating a bigger hole for future legislatures to fix. A budget based on gimmicks and one-time unusual events does nothing to solve anything.

Every New Hampshire budget requires some decisions about which programs can be afforded with existing revenues and which must be curtailed. The weighing of competing options is the whole point of a budget. Programs are never evaluated in and of themselves. Instead, they are weighed against competing alternatives and the resources available.

This decision-making process is difficult. Most legislators find themselves wishing they had more resources so they could say yes to more people. Inevitably, someone will come up with a proposal that isn’t sensible, but is attractive simply because it delays a difficult decision.

In the budgets of 2007 and 2009, the gimmicks that delayed the day of reckoning included borrowing money. Rather than paying the bills, for example, the Legislature borrowed the money to pay the bills for previously borrowed money. It gave lawmakers room for the year, and the payments became the problem of future legislators.

A massive explosion of debt – we increased the state’s debt in four years by the same amount as the previous 20 – made life easier in one budget and hard for the 20 years that will follow. Debt service payments today are 30 percent higher than they were 10 years ago (even though the general fund budget is about the same). Those payments leave less money for everything else.

The second big problem is one-time revenues. For example, the 2009 budget paid for ongoing expenses with $167 million of one-time stimulus money. While the money temporarily plugged the budget and made life easier for that one year, it created a giant hole for someone else to fix.

Put it all together and the 2011 budget was a nightmare to fix, and it later required a 10 percent budget cut.

Already, some politicians are lining up to repeat the mistakes of the past. First on the list is the contradictory treatment of gambling revenues. The governor’s budget and the Senate-passed gambling bill would allow gambling revenues in the coming biennium (largely from one-time franchise fees) to be used as general operating revenue. Then, the ongoing gambling taxes starting in the budget after that would be dedicated.

To use the $80 million franchise fee in this budget would then create an $80 million hole for someone else to fix later. Whether you support a casino or not, you don’t want it to create a fiscal problem. The revenue should all be dedicated or all be for general use.
Another problem is the use of dedicated funds and lawsuit money. The House-passed budget would raid funds that are dedicated to specific purposes and use them for general purposes. The House did this so it could rely on some money from a tobacco lawsuit for a one-time cash infusion. In truth, neither should be used.

Whether raiding a dedicated fund is legal or not, it uses a one-time source to pay for ongoing expenses, which kicks the problem down the road. Similarly, lawsuits, whether related to tobacco or the MTBE settlement, can’t be counted on to supply ongoing revenues.

The operating ethic of Washington is to delay decisions, borrow money and hope that some future people will discover a magic solution. Washington’s budget is never balanced, and our grandchildren suffer for it.

The Washington ethic must not become the Concord ethic. The temptation to delay is human nature. When someone dangles a solution that makes your life easier at the expense of some nameless person in the future, it’s hard to say no. But it’s important to say no.

If we deal with the problem today, it’s smaller and more manageable. To kick it down the road makes it progressively larger and more divisive, and the decisions that have to be made later more painful.

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Sometimes a Monopoly is Not Enough

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Charlie Arlinghaus

April 11, 2013

As originally published in the New Hampshire Union Leader

Every problem does not demand government action. Every business relationship doesn’t need micromanaging intervention by legislators. Yet in this day and age the first course of action for many businesses is to turn to their elected friends for a little help.

A classic example of crony capitalism at work is the legislature’s intervention on behalf of auto dealers in their relationship with manufacturers. Everyone likes auto dealers. They’re nice guys, big donors to a variety of civic and political interests, even think tanks on occasion. They tend to be among the largest employers in many political districts and a very visible part of the community.

It’s natural that our elected officials want to lend them a helping hand. The auto dealers managed to convince almost the entire state senate to intervene in their franchise agreements. Auto manufacturers insist, as part of the franchise agreements, on many things. The franchisees believe that some of these things just cost money and do not actually sell any more cars.

No one would suggest that McDonald’s or Dunkin Donuts can’t insist on anything it wants in its franchise agreements. It would be great if I could get a hot dog at McDonald’s. It is just silly that they won’t let their franchisees sell hot dogs. It probably costs them sales. But any suggestion government intervene in that relationship would be dismissed out of hand.

Cars are different. They’re bigger, cost more, and go fast. Apparently that means micromanaging is on the table. The state currently has 34 pages of rules and regulations about car franchise agreements and the retailers want many more.

Cars really are different from most consumer products. There is no other consumer product that you can not buy direct from the manufacturer. None. It is in fact illegal – an unfair business practice punishable by law – for Buick to sell you a car directly.

The sales monopoly provided by law to dealers is intended to protect them in two ways. First it shields them and their investment from the internet competition that is allowed in every other business (think about bookstores and competition from Amazon). This is a concern every business has but no others are allowed to shield themselves from.

Second, we are giving them leverage in their relationship with the supposedly all-powerful manufacturers. They must granted exclusive rights or the manufacturers could ruin them. This is also the supposed reason for 34 pages of current state laws that regulate this franchise system and no other.

A recent paper by the economic analysis group of the Department of Justice found potential savings of as much as $3,000 per vehicle from the currently-prohibited direct-to-consumer sales of vehicles. In recent years, direct sales have been promoted by groups as diverse as the libertarian Cato Institute, the moderate Democratic Progressive policy Institute, and the liberal Consumer Federation of America.

 

But to protect auto dealers – and we all like the local guys – we are asked to forego those potential savings and maintain a dealer sales monopoly. We are also asked to support the current 34 page set of laws that regulate this one set of franchise agreements. Now that’s not enough. Apparently the government needs to step in and pick sides yet again.

Now it’s not just cars but lawn mowers. Farm equipment and lawn mowers are being redefined as motor vehicles for the purposes of franchise regulation (I’m not making that up – your lawn mower is now a car). You can’t blame the mower guys for wanting to get in on a good deal. The only question is which product will be next.

 

In addition, we are told horror stories of franchisees forced to use non-local suppliers or do things that cost too much money (the biggest complaint is expensive remodeling too often). I’m sure any franchisee in any business can tell stories of the dumb things that “corporate” makes them do, cost them money, and don’t apparently help anyone. But in this case the dealers get to write their complaints into law.

 

I’m not about to defend any stupid decision that some auto manufacturer makes. But they are a private business and their stupidity is not the government’s business. Every stupid decision does not demand government action.

 

It is inconsistent to insist on the government protecting your exclusive franchise monopoly and then complain that the monopoly comes with annoying strings attached.

 

Rather than micromanaging a private agreement between a business and a franchisee, perhaps the government ought to eliminate the restrictions that make this the only consumer product in America that I can’t buy direct from the factory.

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NH paying for decision to borrow Building Aid funds

Grant Bosse

New Hampshire’s decision to borrow money for three years to pay for the state’s Building Aid Program is adding a $27.6 million crunch to the current budget debate. Despite suspending new school construction projects from applying for state assistance several years ago, state taxpayers still owe more than $495 million over the next thirty years, and an additional $168 million just to pay off the bonds for the three years lawmakers took out loans to fund the program.

NH School Building Aid TailSince the late 1950′s, the state budget has subsidized local school construction projects. Brising construction costs and a flood ofnew construction projects around the state made Building Aid one of the fasting growing programs in the General Fund. The New Hampshire Center for Public Policy Studies 2011 report Under Construction found that local requests for Building Aid doubled from $25 million in 2003 to over $50 million a year.

Facing falling state revenues, Governor John Lynch proposed shifting the Building Aid Program from the General Fund to the state’s Capital Budget. Instead of paying for the state’s annual assistance checks to local school districts from that year’s tax revenues, the state would increase the amount it borrowed by issuing General Obligation Bonds. From Fiscal Year 2009 to 2011, the Legislature borrowed $131 million to cover three years of Building Aid payments, incurring $188 million in debt that will be paid in full by FY30. $168 million from those bonds remaining outstanding.

State obligations to schools already entered into the Building Aid program total $495.6 million. Debt service payments for the three years of Building Aid borrowing increase the state’s future obligations by 34%.

The decision to rely on increased debt in 2009 makes it harder for the current Legislature to balance the budget, which passed the House last week and will soon be reshaped by the Senate. Scheduled Building Aid payments of $45.2 in FY14 and $42.7 million in FY15 to local school districts must be made, though the state is not likely to accept any new schools into the program. The state also needs to repay bond holders $14 million in FY14 and $13.6 million in FY15.

Total state spending on the suspended Building Aid Program will total $115 million over the next biennium. The last Legislature put a $50 million annual cap on the program should the state resume accepting new projects, but the tail from previous commitments falls sharply as older school bonds are paid off. By the time the 20-year notes taken out to fund Building Aid from 2009 to 2011 are paid off, the state’s annual obligation will have dropped to just $5 million, and taxpayers will have paid of more than 96% of their pledge to local school construction.

The state’s debt service payments on Building Aid are also front-loaded, dropping to $11.5 million annually in FY20, and just $3.8 million by FY30. But the past obligation crowds out current spending priorities in the budget that begins July 1, 2013. The decision to borrow to pay for Building Aid means there is $27.6 million less to spend on other programs over the next two years alone.

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Games and Gimmicks are Always Part of the Budget

Charlie Arlinghaus

April 3, 2013

As originally published in the New Hampshire Union Leader

The current state budget is a work in progress that needs a lot more work and some more progress. As with any budget, there are good things and bad. The House version is a step forward from the governor’s but has a few glaring problems that need fixing.

To begin with, while general fund spending is up 9.1% over the two years of the budget, that fact is obscured by a return to accounting gimmicks that serve no real purpose except to hide the increase. Two large categories of spending have been relabeled so that they appear in the old budget totals under general fund but are left out of the new general fund total.

Perhaps Board and Care revenue/spending and plea-by-mail fines should be dedicated funds but the happy political effect of removing them makes it appear at cursory glance that those $71.3 million aren’t being spent. That makes budget writers appear a great deal more frugal than they actually are unless you spot the sleight of hand.

Dedicating a fund brings up a much larger problem – the problem, potentially a legal one, with pretending some funds are dedicated and then raiding them as if they are not. This budget employs another accounting gimmick for the sole purpose of making it easy to “clean out” dedicated funding sources and use the funds for purposes other than state law allows.

Some revenues, particularly some regulatory fees, are “dedicated” by having the revenue from the regulatory fee go into a special account which is meant to be used for the particularly activity. Usually, the dedicated regulatory fee is set at a level to cover the cost of regulation because the cost of regulation is the only excuse for assessing the charge.

Because of the relationship, the money collected stays in the account and doesn’t expire. That ensures the charges are never used to pay for spending outside of the purpose of the fee.

However, because some of these dedicated funds carry a balance, state budget writers routinely cast a covetous eye on those funds. But because spending that money for contrary purposes is of dubious legality, they rarely take the money. This year is shaping up to be one of the exceptions.

The governor’s budget called for her to be given carte blanche to take any money from any fund without permission or accountability. The House budget would allow her that same authority but ask for a report after the fact, In contrast, when Gov. Lynch raided dedicated funds in 2010, legislation spelled out which funds and the amount to be taken.

The House budget calls for $31.7 million to be taken, in theory to balance a probably deficit in the current fiscal year then ends on June 30. One difficulty is that the supposed shortfall is apparently being artificially propped up.

In the next two weeks, the state will receive a $30 million tobacco lawsuit settlement – essentially a refund of amounts due from the previous 7 years that were held in escrow instead of paid. Legislation was rushed through two weeks ago so we could accept the money.

Ordinarily, that money would be booked as 2013 revenue because that’s when it will be received. But the House version of the budget calls for holding onto it and counting $24.1 million in the next budget instead. How does that help?

If the deficit in 2013 is larger by $24 million, budget writers can do the dubious dedicated fund sweep and have $24 million extra to spend in their current budget. It makes balancing the budget easier and saves some decision making.

Sweeping out dedicated funds is of dubious legality and is general only thought of in the most extraordinary circumstances. If the circumstances aren’t extraordinary, we shouldn’t artificially enhance the deficit to make it easier to take that money. Not to mention that propping up some spending on a one-time windfall is generally a bad idea.

The House version of the budget spends almost $42 million less than the Governor’s (after accounting for moving funds offline). It’s a step in the right direction. But this version still relies on a number of sketchy assumptions even beyond the ones detailed above (for example: a small number of tax and fee hikes that won’t pass the Senate, an assumption that more auditors can squeeze $26 million more out of businesses).

The next version of the budget should have fewer gimmicks and changes that hide rather than clarify spending decisions.

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2014-2015 Budget Resources

As the Budget Process gets under way at the State House, in addition to publishing our pieces on the main page, we will be aggregating all of budget related content here.

Be sure to bookmark as we will be updating this list regularly!

 

Documents:

The House Budget: Apples to Apples General Fund Comparison

The Senate Budget: Apples to Apples General Fund Comparison

Highway Fund Spending: Governor vs House

Health and Human Services General Fund Spending: Governor vs House vs Senate

(Updated to included House Sununu Center reductions)

 

Studies and Analysis:

Charting the Highway Fund Diversion

The Highway Fund Diversion: What Does Safety’s Cut Pay For?

March Revenues Shrink Projected Deficit

House Budget Relies on Tobacco Settlement Money To Balance

NH Paying for Decision to Borrow Building Aid Funds

Meet the MET

Governor, House and Senate Largely Agree on HHS Budget

Back of the Budget Cuts at Heart of Dispute on HHS Budget

State Fills 400 Positions Despite Hiring Freeze

Off Budget: What Happens if New Hampshire Doesn’t Have a Budget

Battle Lines: A Guide to the Budget Committee of Conference

 

Op-eds:

Games and Gimmicks are always a part of the Budget

On Medicaid Expansion, the Answer is “Not Yet”

Rhetoric on the Budget doesn’t Match Reality

When the Government Expires at Dawn

On Medicaid Expansion, Rhetoric Isn’t Reality

State Employee Pay is a Complicated Question

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NH House Budget relies on tobacco money to balance

The two-year state budget up for debate in the New Hampshire House today relies on $30 million from a settlement with tobacco companies that hasn’t been finalized. The Legislature rushed through SB199 in March in order to give the Attorney General’s Office authority to sign the deal. Once complete, the nation’s largest cigarette makers will distribute billions to 19 states entering into the agreement, if objections from other states don’t scuttle the deal.

While New Hampshire would use the windfall to help balance the Fiscal Year 2014-2015 budget, the state would end up paying back nearly all of money to tobacco companies over the next five years.

In 1998, 46 states settled lawsuits with the four largest tobacco companies over claims that cigarette smoking led to higher health care expenses. The Master Tobacco Settlement Agreement required the those companies, and dozens of smaller cigarette makers who later joined the agreement, to make annual payments to the states based on annual tobacco sales. Several smaller companies declined to join the settlement. The settling companies required state officials to seek escrow payments from these Non Participating Manufacturers (NPMs) to in order to prevent the NPMs from gaining a competitive advantage. Should an independent auditor find that the NPMs had gained market share as a result of the state’s failure to collect escrow payments, the states would have to refund part of their settlement checks.

The big tobacco companies have claimed that they have been owed refunds since 2003, and began withholding part of their annual allocation to states since 2006. New Hampshire Associate Attorney General Richard Head says $8 billion in contested payments is at issue. If the latest settlement goes through, the tobacco companies would distribute a portion of that $8 billion to the 19 states signing the new deal, and agree not to withhold any of their scheduled payments for the next two years. Head says this agreement would settle all claims from 2003 to 2012, and he believes could head off litigation in the future.

But most states aren’t joining the settlement, and Head says several are drafting objections. In exchange for a share of the disuted funds up front, states would start paying the NPM Adjustment back. While state treasuries would get a quick cash infusion from the settlement, they would have to pay back half of the amount almost immediately, and most of the rest of the settlement over the next four years. Head says while the amount paid in NPM Adjustments can’t go higher than the lump sum, he expects the state to receive a “very small net positive” from the deal.

The new settlement would effectivey be a no-interest loan funding the current budget, but foregoing higher tobacco settlement payments over the next five years. The Master Tobacco Settlement Agreement has paid New Hampshire about $40 million a year for the past 15 years, as part of $6 billion distributed to states annually. Head says the tobacco companies have been withholding $1.2billion a year over the NPM issue, which meant $5 million less for New Hampshire. He argues that the Granite State won’t notice the drop. Instead of withholding payments, the tobacco companies will simply owe less each year. Meanwhile, Head says that New Hampshire will get the use of the $30 million right now. He couldn’t specify exact amounts, since an independent auditor needs to determine precisely how much market state the Non Participating Manufacturers have gained.

This settlement is a key cog in the budget bill on the House floor today. While the $30 million payment could come in as soon as April, House budget writers are booking $21.6 million in FY14 and $2.5 million in FY15. Moving that revenue out of the current Fiscal Year means that it can’t be counted against a potential FY13 deficit. Governor Maggie Hassan wants to sweep surpluses from unidentified dedicated funds throughout state government, but the budget only gives her that authority if it’s to cover a deficit. Booking the tobacco settlement money in FY13 would create a surplus, sending money into the state’s Rainy Day Fund. Booking the money after June 30th would make it available to support General Fund spending.

The current year deficit might not be as large as feared when Hassan submitted her budget proposal to the Legislature. March business tax revenues released yesterday helped cut the current budget shortfall from $41 million at the end of February to $14.5 million with three months to go in the Fiscal Year.

Head says there may be good reason not to count on the tobacco settlement revenue this year, since Colorado and Maryland are already preparing legal objections to the deal.

“We’re going to contest the objecting states’ claims, but litigation is difficult to predict,” Head explains. He says the check might not arrive for two years.

That uncertainty calls into question whether budget writers should count on the tobacco settlement to balance the FY14 budget. If delayed, haf of the money would need to be paid back to cigarette makers almost as soon as it arrived, leaving much less to spend on the General Fund.

The New Hampshire House takes up the state budget, HB1 and HB2 today at 10am.

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House Budget Increases Highway Fund Diversion

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The House Finance Committee’s budget increases the diversion of Highway Fund away from the Department of Transportation to other state agencies to $28.5 million.

Under the House’s proposed budget, 67.3% of Highway Funds, net of block grants to the cities and towns, will go to Transportation, 31.7% to Safety, and 1.1% for other. These ratios represent an additional $500,000 over the biennium being diverted away from the Department of Transportation over the Governor’s budget.

RSA 9:9-a, which set the ratios of Highway Fund spending, would have required a minimum of 73% of the funds raised to go to the Department of Transportation, with caps of 26% to the Department of Safety and 1% for other agencies. The law, which was passed with broad bipartisan support several years ago, will be suspended as part of the language in both the Governor’s and House’s Budgets.

Updated Click here for a comprehensive spreadsheet

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Huge March revenues shrink projected deficit

Better than expected business tax collections boosted state revenues in March, cutting the state’s projected budget deficit by more than half with just three months to in the current Fiscal Year. Overall, New Hampshire collected $637 million in March, $26.5 million more than the budget plan. The extra revenues will cut a shortfall of $41 million down to $14.5 million.

Governor Maggie Hassan has asked the Legislature for broad authority to raid dedicated funds across state government in order to fill any deficit left on June 30th. The House budget up for a vote tomorrow gives her that authority, and also requires the Administration to report on where it took the money. Should state revenues run significantly ahead of forecasts for the next three months, there would be no need to drain funds paid for by dedicated fees such as Fish and Game licenses and conservation plates.

March business taxes filled state coffers. Business Profits Tax revenues ran $7.5 million ahead of projections while the Business Enterprise Tax generated $9.3 million more than the plan. Insurance Taxes came in $5 million over budget, while Interest and Dividends alone were 77% higher than anticipated, $4.6 million versus $2.6 million. The Department of Revenue Administration says this surplus may stem from taxpayers filing their federal taxes earlier this year because tax forms were available earlier.

Tobacco tax revenues exceeded projections by $700,000, bringing Year To Date proceeds within $8.8 million of the forecast.

Overall, total state revenues are now running just $14.5 million behind schedule, compared to a $41 million deficit at the end of last month. While Hassan and Democratic budget writers have blamed a 10-cent per pack cut in cigarette taxes for the shortfall, to other sets of taxes are having a much bigger impact of state finances. Communications taxes are off $13.3 million from the budget adopted two years ago. And Medicaid Enhancement Tax revenues are $34 million short.

In fact, the state would be running a significant surplus, even with tobacco and communications taxes failing to meet expectations, if hospitals weren’t in a protracted fight with the state over much how they owe under the MET. Several hospitals dispute what the Department of Revenue Administration says they owe under the tax, which until this past budget was immediately refunded to hospitals under the Disproportionate Share Hospital Program. They are withholding part of MET payments and suing the state for previous cuts to Medicaid reimbursement rates.

The MET dispute is not only creating a potential deficit in the current year’s budget, but could blow a whole in the FY14-15 Budget up for a vote in the House tomorrow. The New Hampshire Hospital Association is warning lawmakers not to count on MET revenues increasing by 19% in 2014 and another 8% in 2015. The budget endorsed last week by the House Finance Committee estimates that in the next two years, the MET will bring in $93.5 million over FY13 revenues.

 

Update: The original version of this story did not include that the sweep of dedicated funds must get approval from the Fiscal Committee. Thanks to Ben Leubsdorf of the Concord Monitor for the addition.

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